Are some people just better investors? Could you improve your own investing by having the right personality?
Legendary investor Warren Buffett, who has amassed a US$72 billion fortune, said, “Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.” A lot of it comes down to temperament rather than academic or mental skills.
What personality traits will help you be a successful investor?
- Patience– You may have found a good company with tantalising prospects, but it’s already too expensive. Impulsive buying may make you buy high and sell low when the hot stock’s share price tanks. Waiting for the “fat pitch”- a juicy investment opportunity – could increase your returns because you paid a lot less.
- Inquisitiveness– Your curious nature drives you to know more. What makes Company A better than Company B? You don’t just take things at face value and you are willing to put in the extra effort to find out for yourself.
- Humility– You don’t believe you are incredibly talented and way above others. Also, you realise you could be wrong in your decision making, so you don’t become a victim of your own biases and pre-conceived ideas.
- Integrity– You stick to your plan for investing and don’t buy stocks that fail to meet your requirements. Consistent stock picking can help you make consistently good returns.
This combination of traits can help you locate stocks with a particular value that may be downplayed or overlooked by the market.
For example, Cochlear Limited (ASX: COH), the market leader in cochlear implants in the US for the hearing impaired, has had an attractive boost in earnings thanks to a number of new products hitting the market recently.
Its stock is trading at 35 times earnings, which may make some investors say it is too expensive.
Yet forecast earnings growth is an average 38% annually over the next several years. That level of high growth makes the price reasonable and over a longer time period the value of the stock reveals itself.
I think Cochlear could generate steady returns for patient, long-term investors.